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Weekly Economic Commentary

Monday October 6, 2014

The Senate Economics Committee Inquiry into Affordable Housing heard from Reserve Bank assistant governor Dr Malcolm Edey that the RBA and APRA would be working to limit risky home lending to investors.

Dr Edey said the problems were largely with the supply side of the ledger and, because additional demand results in higher prices over time, "due attention needs to be given to supply-side factors in any policy response to perceived problems of affordability”. Targeted assistance can certainly help particular groups such as first-home buyers," he acknowledged, "but without a supply-side response, any generalised increase in demand will just be capitalised into prices."

National housing prices have been rising at a rate of around 10% over the past year, and around 15% in Sydney. Loans to investors currently account for close to 50% of new housing loan approvals (with the percentage highest overall in NSW).

Dr Edey told the Committee that the RBA was discussing with APRA "steps that might be taken to reinforce sound lending practices, particularly for investor finance, though not necessarily limited to that."

When he was asked what specifically was being considered, he said he wasn’t “ruling anything in or out” and suggested we may see a policy response “before the end of the year” and that the “tools we are talking about need to be carefully targeted”. When pressed again on the use of the unnamed macro-prudential tools, Dr Edey said it was unlikely APRA would resort to loan-to-value ratio limits, because they targeted the wrong parts of the property market.

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